38/08

The BHP Billiton Board today decided that it no longer believes that completion of the offers for Rio Tinto would be in the best interests of BHP Billiton shareholders.

BHP Billiton Chairman, Don Argus, said today's decision was first and foremost about BHP Billiton shareholder value and risks to that shareholder value.

""We have said that we would only seek to complete the transaction if it was in the best interests of BHP Billiton's shareholders. While we have not changed our view of the basic industrial logic of the combination, or of the longer term prospects for natural resource demand growth driven by emerging economies, we have concerns about the continued deterioration of near term global economic conditions, the lack of any certainty as to the time it will take for conditions to improve and the risks that these issues imply for shareholder value.""

Marius Kloppers, BHP Billiton's CEO, said:

""We have previously said that similar cultures and the overlap of key assets and infrastructure make this a compelling combination. Recent global events and associated falls in commodity prices have, however, altered risk dimensions. BHP Billiton is very focussed on balance sheet strength. Accordingly, the greater debt exposure of the combination plus the difficulty of divesting assets have increased the risks to shareholder value to an unacceptable level.""

Commodity price falls in the last month are illustrated by reference to the LME copper cash price. Over the 12 month period to 21 October 2008 the fall was approximately 43%. In the one month to 21 November 2008 the fall was 23%. These falls are paralleled by market movements. For example, for the 12 month period the ASX S&P/ASX 200 index fell by 36% and, for the one month period it fell by 21%.

Regarding antitrust requirements, BHP Billiton has received clearance without remedies from the US Department of Justice and the Australian Competition and Consumer Commission. BHP Billiton understands that the European Commission will require divestments in iron ore and metallurgical coal to deal with its concerns. In the normal range of economic conditions BHP Billiton would have been prepared to offer remedies which we believe would have been both acceptable and manageable.

However, given the current economic circumstances and uncertainty regarding our ability to achieve fair divestment values in the required time frames, these remedies would contribute to the cost and risk of the transaction. Against this background BHP Billiton will not offer any remedies to the European Commission antitrust authorities, and BHP Billiton expects that without remedies European Commission clearance will be withheld. The European Commission's formal review process will likely continue until early to mid January 2009.

Other key elements that have substantially increased the risks to shareholder value for the combined company to unacceptable levels include:

• The prospective level of debt of the combined company, compared to the possible cash-flows required to service and repay that debt against the background of difficult economic conditions over the near term; and
• Concerns regarding the ability to divest other non-core assets already flagged for divestment by Rio Tinto including Rio Tinto Alcan Packaging and Rio Tinto Alcan Engineered Products which impacts the ability to reduce debt and requires the continued management of these complex businesses.

If, despite BHP Billiton offering no remedies, European Commission clearance were to occur, BHP Billiton would be required to seek the approval of its shareholders in Extraordinary General Meetings. Were this to happen, BHP Billiton's directors intend to recommend that its shareholders vote against approving the transaction.

BHP Billiton intends to write off the costs of approximately $450 million incurred in progressing this matter over the eighteen months up to today's announcement in the December 2008 half year results.

Despite the near term challenges, BHP Billiton is in a very strong position with net debt of only US$6.3bn at 31 October, 2008 and a portfolio of assets that will continue to deliver sound cash-flows.

Marius Kloppers said:

""BHP Billiton will continue to invest to be in a position to meet long term customer demand. Our announcement today that the Board has approved RGP5, the next major growth project for our iron ore business, demonstrates this. Our strong balance sheet is a competitive advantage in times like these. Together with our portfolio of long-life, low cost, expandable, Tier 1 assets, we believe this places us in a better position than any other major mining company to deal with these uncertain times. BHP Billiton's priorities for cash flows remain to invest in its core businesses, manage its balance sheet to a solid single A credit rating, maintain its progressive dividend policy and return any surplus cash to shareholders.""